The withdrawal of cheap money deals and higher mortgage rates will reduce house buying power by nearly a third, the latest House Price Index from Zoopla warns today.

The Bank of England delivered a major intervention yesterday with a 13-day £65 billion emergency measure to buy government bonds ‘at an urgent pace’ – £5 billion a day – to calm markets and warned of ‘material risk to UK financial stability’.

The move came after Chancellor Kwasi Kwarteng’s mini-budget last week sent the pound tumbling and set off historic falls in gilt prices.

The resulting mortgage product withdrawals – finance site Moneyfacts reports some 935 mortgage products have been pulled in the last 48 hours – and subsequently soon to be higher rates has sent the market into a spin.

BUYING POWER

Zoopla says if average new mortgage rates reach 5% + by the end of the year – assuming buyers want to keep monthly payments unchanged – buying power could be reduced by as much as 28%.

Zoopla’s Richard Donnell says: “A surge in home values over the pandemic and the rise of mortgage rates means we face a sizable hit to household buying power over the rest of 2022 and into 2023.

“While the recent changes to Stamp Duty are welcome, supporting activity in regional markets and the first-time buyer market in southern England, the increase in mortgage rates will erode much of the gains.

“Homeowners that want to sell their home this year need to price realistically and seek the advice of an agent on local market trends.”

HIGHER RATES

Marc von Grundherr, Director of estate agency Benham and Reeves, adds: “Higher mortgage rates are certainly the most influential factor when it comes to the purchasing power of the nation’s homebuyers.

“The market is now at a bit of a tipping point where house prices have continued to increase rapidly, but the reality for many buyers is that they are no longer able to stretch themselves financially.

“The very best course of action in any market is to price appropriately.

“Yes, the latest Stamp Duty cuts will leave buyers a little extra in their back pocket when it comes to negotiating, but don’t be fooled into thinking this marginal saving will spur them into paying way over the odds for your home. It won’t.”